What is the Acid Test
ratio?
(Cash + accounts
receivable + short term investments) ÷ Current liabilities
What is the Acid test
used for?
It is used to indicate the ability of a business to pay its
current liabilities without having to sell stock or long term investments.
What should the Acid
Test ratio of a healthy company be?
It should be at least 1. If the Acid test ratio is less than
1 it means that the business is unable to easily pay current liabilities.
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